Company Law Bill [HL]

moved Amendment No. A74:"Page 273, line 18, at end insert—" ““(   )   Save where to do so would contravene the provisions of section 151(1), it is not unlawful for a private company to give financial assistance directly or indirectly for the purpose of an acquisition of shares in its capital or in its holding company or to give any such financial assistance as is referred to in subsection (2) of section 151 where the acquisition in question is an acquisition of shares in the company or in its holding company.”” The noble Lord said: In speaking to Amendment No. A74, I shall speak also to Amendments Nos. A75, A75A, A76 and A76A. I am not entirely certain whether the noble Lord, Lord Hodgson, will run the argument that the ““dominant reason”” in Amendment No. A75A is different from the ““predominant reason”” in Amendment No. A75. I am not sure whether this is a misprint, as a result of which the amendments have been separated. I suspect that it is the same point. These amendments touch on some fairly technical issues that are relevant to practitioners. Financial assistance to companies may seem an arcane subject, but those of us who have been involved in the practice of company law know that those issues often occur in practice. It is therefore important to get it right. Amendment No. A74 deals with the interplay between common law and statutory law, on the assumption that this clause is passed. There is significant concern that, notwithstanding the passing of this clause in its current form, so permitting financial assistance in the case of a private company, without the words that are the subject of my amendment, the common law rules regarding maintenance of capital—in particular, Trevor v Whitworth—would operate in certain circumstances to prevent a private company from giving financial assistance for the purchase of its own shares. The purpose of the amendment is to make it clear that the legislation is designed to enable a private company to do exactly that. The purpose of Amendments Nos. A75 and A76, and, I suspect, of Amendments Nos. A75A and A76A—the noble Lord, Lord Hodgson, will speak for himself—goes to the way in which the ““principal purpose”” exemption has been construed in the past. It is the view of many practitioners in this area that the ““principal purpose”” exemption has been construed so narrowly by the courts as to render it of no value whatever. The suggestion is that the words ““principal purpose”” should be deleted and the words ““predominant reason”” substituted, under my amendment, or ““dominant reason””, under the amendments tabled by the noble Lord, Lord Hodgson. I do not think that either of us is particularly proud of or would claim the adjective. The real substance of these amendments is to deal with the fact that the ““principal purpose”” exemption has been construed very narrowly by the courts in the past. There is a concern that that narrow construction would carry on into subsequent interpretation of the legislation. The consequent purpose of the two amendments is to clarify that certain specified transactions do not of themselves constitute financial assistance. We would take the view that if the ““predominant reason”” amendment is accepted, the following three transactions would not constitute financial assistance: first, the payment of lawful commissions; secondly, indemnities given in connection with any issue of shares; and, thirdly, warranties given in relation to an issue of shares. These are very technical points, but, as I said, they are important to practitioners in this area. I beg to move.